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A twist in tax reform debate
Ideology divides California panel of experts
Tuesday, July 14, 2009
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The blue-ribbon commission charged with overhauling California’s tax system is heading for an ideological clash.

The commission was charged with reforming a revenue system that has been widely criticized for its volatile reliance on income taxes on high-income Californians and its disconnect from 21st century economic realities. Gov. Arnold Schwarzenegger and legislative leaders have said they hope tax reform would smooth out the boom-and-bust cycle in state budgets that has resulted in huge deficits.
At the behest of commission leader Gerald Parsky, the commission, which has been meeting since January, was moving toward a flat rate income tax system that would shift more of the burden to middle-income taxpayers, eliminating the corporate income tax and replacing the sales tax with a broader, European-style tax on all “net business receipts.”

But liberals balked, and this weekend completed what they call the “blue plan” that would retain the progressivity of the current system and make a number of other changes, including removing Proposition 13’s property tax limits from commercial property.
On Saturday, Santa Cruz County Treasurer Fred Keeley dispatched the blue plan to Parsky and asked him to put it on the agenda for Thursday’s meeting, at which the commission was to finalize its major recommendations. The major features of the blue plan are:

• Create a “rainy day fund” from unanticipated revenue to smooth out revenue dips — a longtime Schwarzenegger goal.
• Direct a third of the taxes on capital gains — the most volatile form of income — into the reserve; another third into one-time spending such as debt reduction and allow the final third to finance current spending.

• Study the net receipts tax, but in the meantime, extend the sales tax to services, rather than confining it to retail goods such as cars and furniture. Eliminate the sales tax on business purchases.

• Create a “split roll” so that property taxes on commercial property are based on current values, removing it from Proposition 13’s limits, a longtime goal of liberal tax reformers.

(Walters writes for the Sacramento Bee.)
38 comment(s)

kevin wrote on Jul 14, 2009 4:44 AM:

" More tax increases?

I don't think so.

We already live in one of the highest taxed states in the country, we don't need more taxes! "

Ruff Limblog wrote on Jul 14, 2009 5:08 AM:

" Oh, shucks! Those darn LIBRULZ want to tax people with money instead of raising taxes on those who have less!

All the good old Republican Disaster Capitalism might just go out the window.

We just can't have rich people paying taxes.

~Ruff "

post-it wrote on Jul 14, 2009 7:34 AM:

" The elephant in the room isn't that we have more taxes or need to tax the rich more. It is the distribution of income. If business's changed how they distribute the same payroll dollars, more consumers would have more money to spend in a consumption based economy. "

PastNapan wrote on Jul 14, 2009 7:46 AM:

" When I was a low income Californian I received nothing in entitlements from this state, nor did I want to. Now that I'm a high income Californian I KNOW I more than pay my "fair share" I'm done. I'm leaving the state. Even if I leave my house empty because I'm sure not going to sell it for anywhere close to what I paid for it, and eat the mortgage every month I will still save quite a bit of money in another state. Many more like me will do the same. California politicians are just too dumb to get it. Keep driving out the tax payers while importing people that pay nothing. "

antipc wrote on Jul 14, 2009 8:03 AM:

" Does the liberal side of the isle consider this pile of horse feathers to be reform?

I can’t wait to see the list of triggers that allow for raiding the “rainy day” fund.

Repealing any portion of prop 13 is merely the camels’ nose under the tent for overturning it altogether. Not to mention it would be raising taxes on ALL businesses, offsetting the elimination of sales taxes on business purchases.

Extending the sales tax to apply to services hits everybody not just the “rich” as some would have us believe.

The formula for directing capital gains revenues wouldn’t last one session.

Go back to the drawing board because this proposal changes nothing. Proof positive liberals don't really want to curb the excessive spending. "

freeport56 wrote on Jul 14, 2009 9:37 AM:

" So, the Blue Ribbon Committee (aka RED), wants to shift the tax burden to the over-taxed middle class remove Prop 13 protections from business, and tax businesses on their receipts.

Couple that with the damage AB 32 is about to do to California's businesses by adding an extra $50,000.00 cost burden onto them and what do you get?

Depression, businesses will no longer be able to compete in California. Insane Environmental Legislation combined with revenue stealing taxes will drive businesses and residents out of California. Once the door is breached on Prop 13, it will not take long to go after the home owner.

How about a 5-10% property tax on your $350,000 to 600,000 home?

I doubt many would be able to pay that type tax. Additionally the law of "Unintended Consequences" will show a huge loss of tax revenue and it will leave the Democrats scratching their heads wondering what happened. "

freeport56 wrote on Jul 14, 2009 9:51 AM:

" post-it:

a comsumption based economy is what is killing our economy. After all the taxes that everyone is going to pay no one will have much money to be an active consumer.

The July 10th issues of Business Investors Daily had an article about; California Bails Out Illegal Aliens. Our state is spending in the neighborhood of $11 Billion to support illegal imiigrants. Cut that stream of money off and there is almost have the budget gap gone. Taxpayers are spending their money on 189,000 Im's in our prisons, $8,000 for k-12 education, in-state tuition for CSU's and UC's, not to mention welfare, uninsured drivers having accidents....the list is pretty long.

Since the liberals will not stop this practice, their small and narrow minds can only come up with tax increases.

Time for a revolt. Maytbe Fish and Game can issue tags. "

post-it wrote on Jul 14, 2009 10:44 AM:

" Freeport, that will be true if all the wealth continues to be held by a few. Report today that Goldman is going to pay billions in bonuses. Equal to 700K per employee. In reality, much of those bonus dollars will be given to the few at the top. The right will complain that those few are taxed too much, and the left will claim they are not taxed enough when the real problem is that the business gave too little to the middle and the bottom and hoarded too much at the top. Is our economy to rely on the spending, investment and philanthropic whims of the relatively few rich people? "

manxkat wrote on Jul 14, 2009 11:58 AM:

" Democrats are at it again. More tax increases on poor people. Now they want to tax doctor visits. Democrats take the maximum taxes from the little guy then either cancel the programs for poor people or tax more of them.
But, Democrats are smart because they won't tax the highly placed government workers who make over $100 K and have pensions fit for kings and queens - because they have powerful unions behind them. "

a teacher wrote on Jul 14, 2009 12:37 PM:

" I think this is simple. The people want government services. They want good schools, good roads, a safety net for the poor, etc. If the people want these things, they have to pay for them. If they don't want to pay for them, they can't have them.

The people of California need to grow up. "

steph wrote on Jul 14, 2009 1:05 PM:

" The people don't want government bureaucrats and their cronies skimming off the plenty of money we taxpayers send over for the services we want and need.

Therein lies the divide.

Add to the fact that too many people are either tangled up in that so-called "safety net" for the "poor" or are working very hard to get into that net.

The taxpayers who want all those services need to be met by prudent spending and a little stepping up from people who contribute NOTHING.

It's not that simple.

Some people of California need to grow up, but for now the taxpayers are fatigued over all the crying poor that is going on. "

Kizzie wrote on Jul 14, 2009 2:21 PM:

" Where's the cut in goverment spending proposal? All I see here is another redistribution of the wealth program and Liberals buying votes with our tax dollars.

Where do I sign up for one of those government jobs? "

Kizzie wrote on Jul 14, 2009 2:27 PM:

" Yeah, right Ruff.

Let's tax and tax and tax those mean, ugly rich people. they don't deserve what they've got, so let's take it from them. If we get enough people together (mob rule), we can probably get it all.

Just curious, how much do you think is enough? "

Kizzie wrote on Jul 14, 2009 2:36 PM:

" Teacher, people want government services, and most I know don't mind paying for them. It's the waste and fraud in government that has people fed-up. The incompetence and corruption shown by our state goverment is unacceptable, but as long as they keep promising more, the people keep voting for them. the powerfull groups controlling or "representatives" will ride them and us into the ground.

The people of California deserve what the get for voting the way they have all these years. "

post-it wrote on Jul 14, 2009 3:02 PM:

" Teach,

All of the people have to realize that when we spend more than we take in, our whole society is taking more than we are paying for. This has been happening for years and is unsustainable. EVERYBODY consumes government services.

Most people would like to pay for the services they need with their own money. To that end wages are a larger issue than taxes.

I challenge all the conservative (and liberal) business folks that want lower taxes on their income to pay their employees better so that they need less government assistance/intervention. The surest way to reduce the "need" for government to provide food, shelter and health care is to ensure people have the money to afford it on their own earnings. A side effect is that they may have some left over to buy what you produce. "

greyhoundgirl wrote on Jul 14, 2009 3:03 PM:

" Cut off all the freebies to the illegals that WE the tax payers pay for! If we all got to choose where our taxes went no one would be sending them to the hospitals where illegals get to have 5+ babies for FREE. They are the dogs of California, they work hard and then expect to get all their living expenses for free. ENOUGH! "

a teacher wrote on Jul 14, 2009 3:22 PM:

" I'm sorry Steph, but I think most of that is nonsense.

First off, "The people don't want government bureaucrats and their cronies skimming off the plenty of money we taxpayers send over for the services we want and need."

You can't document that statement. It's popular to call politicians corrupt, but I've been in places that are corrupt, any corruption in the USA is petty in comparison to say Nigeria or Kenya. I would bet the vast majority of the money we send to Sacramento goes where they say it's going.

Is that money being spent wisely? That's a very reasonable question.

I doubt many people choose poverty. I doubt many people want to be on welfare. It's not a fun life style. You often portray hordes of people looking to drain the California taxpayer dry. I dare you to back that up. Even illegal immigrants come here to work. They're out there picking grapes or washing dishes for minimum wage. They work. They're not living off of your tax dollars.

Do you know what part of the California budget goes to "entitlement"?

I don't see how the average Californian pays all that much tax. It seems to me that the bulk of the taxes come from the wealthy. Poor people, working class people and the middle class all send thier kids to schools. They all use the roads. They all want bad guys kept in jail and police to patrol the streets. These things cost money. Seems to me that Californians are happy to spend someone elses money on those things. "

jersey guy wrote on Jul 14, 2009 4:37 PM:

" The flat tax is the only way to go for all income taxes-state and federal. It's the only fair system. The more you make, the more you pay, but lower income people still pay some tax. You don't get a higher rate because because you make more money. The graduated tax system is confiscatory.
Of course, the only way a flat tax would work is to eliminate all deductions which is fine with me.
To avoid taking money away from people who have almost nothing, an income floor, below which no tax would be due would take care of this.
With a flat tax, more people who use taxpayer funded services would actually pay tax except for the extremely poor. "

steph wrote on Jul 14, 2009 4:45 PM:

" teacher, there have been many posts on this subject all over these message boards.

What percent of Californians pay NO income tax? What percent of welfare cases do California tax payers support?

Here: "John Wagner, director of the state Department of Social Services, said lax sanctions have led to a high number of welfare recipients in California. He said the state is home to 30 percent of all welfare families nationwide who are receiving federal cash assistance, compared to 3 percent in Texas and 7 percent in New York. California accounts for 12 percent of the nation's total population." http://www.google.com/hostednews/ap/article/ALeqM5jJ7uUDlO1sEo7K7bEfHpj4G7wuLQD99AKDR00

So, sure, maybe people don't WANT to be poor, but what are they doing about it? What are we doing about it? Entitlement spending is only the tip of the iceburg when it comes to poverty. You have to add in the cost of lost productivity and crime, for example, and impact on education. Money taken from productive people and given to non-productive people does little for the GDP and is BAD for the economy.

And, are you kidding me to say that illegals are here only to work? Really? No under-the-table black market, no fraud there? Nobody is here to have American babies free of charge and live off the taxpayers in their American babies' Section 8 home? Hordes of illegal workers AREN'T driving down middle class wages in construction and similar once-lucrative fields? Really? You're the only one who believes that.

I mean, teacher, we've been through this ad nauseum.

Why are state and city workers making large salaries and huge retirement packages?

Here's another example of the problem: http://www.sfgate.com/cgi-bin/article.cgi?file=/c/a/2009/07/11/MNIO18KH3Q.DTL "

PlasticPinkFlamingo wrote on Jul 14, 2009 4:57 PM:

" Typically, no one said anything to suggest we shouldn't tax the rich and ruff launches a tirade about Republicans. Unfortunately what ruff won't admit is that the rich are now in the Democrats' pocket.

We do need a drastic overhaul of the current tax system and putting a fair tax in place, that everyone (got it, ruff?) pays would be easy to administer, be less prone to cheating, and would overall raise more revenue and cut bureaucracy. Ooops, that last part is why the Democrats don't like it. Cutting government is a major sin to Democrats, and we certainly can't have that. "

antipc wrote on Jul 14, 2009 7:10 PM:

" Actually PPF, the second to the last part hits closer to home with the Dems.

How do you get a high paying job in the Obama administration without being a tax cheat? "

a teacher wrote on Jul 14, 2009 7:31 PM:

" And the article you cite at the end of your comment supports my point. The Governor claims up to 25% fraud, but nearly everyone else quoted in that article says that is WAY too high. The last sentence points out that only 2-3% reaches the prosecutors office.

Why would Mexicans want to come here for free births (that is not true anyway) when they can have them for free in Mexico? Mexico has a public option and their health stats for infants aren't too bad.

Most illegal immigrants work for a living. They pay taxes, Social Security and Medicare taxes. Half have Healthcare Benefits.

We have argued this many times. Mostly, you're wrong. "

steph wrote on Jul 14, 2009 8:02 PM:

" Mexicans come here for free births so they can give birth to American citizens and collect entitlements. That most illegal immigrants work isn't the problem, and you don't want to discuss the problem; you're changing the subject. Illegal immigration costs more than it delivers.

Really, teacher, why must you feign ignorance with such authority?

As for home health care, there is fraud, and then there is the abuse. My question is this (I'm not alone in asking this): WHY do I have to pay your relative to take care of you (allegedly) in your home? Why is there even an industry like this? This is ridiculous! Again, at the expense of our schools!

Our government is TOO BIG. WE CAN'T AFFORD IT! "

TAXPAYER wrote on Jul 14, 2009 8:41 PM:

" When will they get the message? No More Taxes!!!
Cut Government!!
Keep the schools, and basic infrastructure, get rid of any agency that was added in the last 30 years. "

Raven wrote on Jul 14, 2009 9:52 PM:

" as recent as last week the governors office has said that no one there knows where they arrived at the 25 percent number and that they now belive that about 5 percent is close to the actual figure, based on conversations with district attorneys about fraud prosecutions. "

steph wrote on Jul 14, 2009 10:20 PM:

" I would like to point out that if I were poor in Mexico or any other country and had the opportunity to give my baby a better life in the US and knew how to do it, I would do it. American taxpayers are generous, the schools and other services are better here in the US. I don't blame people for wanting a better life. I blame my government and supporters for acting like "the money" is endless or that expansion of government doesn't come at the detriment of a vital economy--neither is true.

Here are some numbers attached to teacher's claim that illegals are all here just to work hard and pay all their taxes: http://www.latimes.com/news/local/la-me-illegal-immigration13-2009jul13,0,4982035.story "The measure's most controversial provisions would take aim at the U.S.-born children of illegal immigrants. It would end state welfare to an estimated 48,000 households and 100,000 children, aid that now costs the state $640 million a year.

Currently, children of illegal immigrants can receive CalWorks benefits if their parents are poor enough to qualify for welfare. About 42% of child only" cases in the CalWorks program involve illegal-immigrant parents, state officials say.

The measure would also cut off CalWorks payments to the children of citizens or legal residents who fail to meet eligibility requirements for state aid because they are unwilling to work, addicted to drugs or absent, among other reasons."

But, frankly, I don't care where you were born if you're living off welfare. There systemic abuse among native-born and legal immigrants, too. We can't afford it. Taxpayers are tired of being blamed for California's problems. We're not the problem. "

steph wrote on Jul 14, 2009 10:21 PM:

" Look at this story that Gene Burns is discussing tonight: http://www.mercurynews.com/ci_12804646?source=rss&nclick_check=1 Outrageous!!! "

steph wrote on Jul 14, 2009 10:46 PM:

" More stats: http://www.latimes.com/news/local/la-me-illegal10-2009jul10,0,3398621.story

I'll go on record as saying that we should pay to educate children who are here illegally. Better they are literate in English and given the opportunity to be productive, successful members of society. I want educated children here. And children should not have to suffer for their parents' choices. On the other hand, I'd sure like our laws enforced.

On not paying taxes: http://money.cnn.com/magazines/fortune/fortune_archive/2005/05/30/8261237/index.htm

"One eye-opening statistic: Mexican nationals working in the U.S. sent home $13 billion last year, the second-biggest source of funds for Mexico after petroleum exports." Another quote: "The IRS estimates that $400 billion a year in federal tax obligations goes unpaid thanks to off-the-books business practices--a number that nearly matches the 2005 federal budget deficit." We sure need that money here in the US, we need honesty before entitlement continuation and expansion.

Of COURSE it's not just illegal immigrants who benefit short-term from the underground economy; there are plenty of native-born wealthy contractors and others benefitting from the cheating--don't get me wrong.

Those of us paying taxes above the table are fatigued. We're not the problem.

I really don't care where you're from as long as you're doing your fair share and being honest about it. "

steph wrote on Jul 14, 2009 11:56 PM:

" Why should taxpayers have to pay family members to care for their elderly relatives at home?

From the article at the SF Chron: ""It's a system based on trust," said Thomas Barni, assistant district attorney in charge of Alameda County's public assistance fraud division. "And it's a system that has a huge potential for abuse of that trust."

Problems in the fast-growing program are inherently difficult to track. Caregivers, often a family member or an acquaintance, do not have to meet any qualifications or undergo screening or background checks. The state and counties lack the resources to investigate fraud effectively."

Fraud: http://www.dailynews.com/search/ci_12420710?IADID=Search-www.dailynews.com-www.dailynews.com

Abuse? "The $40 billion Medi-Cal program receives 50 percent of its funding from the state and 50 percent from the federal government. One in six California residents is a Medi-Cal beneficiary."

Union fraud: http://www.dailynews.com/search/ci_12044987?IADID=Search-www.dailynews.com-www.dailynews.com

Lots of money, very little oversight. Very big problem. "

jersey guy wrote on Jul 15, 2009 8:15 AM:

" Does the discussion of why illegal immigrants come to this country have anything to do with the article on which we are commenting? No I don't think so. The article is about tax policy. "

glenroy wrote on Jul 15, 2009 8:44 AM:

" Bravo....Steph.... "

a teacher wrote on Jul 15, 2009 1:01 PM:

" Again Steph, what part of your taxes goes to "entitlement"? Do you know? What part of that is waste and fraud? Do you know?

It seems to me that you are making a lot of assumptions based on a belief that there are hoards of deadbeats sponging off your tax dollars.

Lets see some numbers and their sources. "

a teacher wrote on Jul 15, 2009 1:13 PM:

" For instance.

In this article:

"http://www.dailynews.com/search/ci_12420710?IADID=Search-www.dailynews.com-www.dailynews.com"

The article states 400,000 thousand people receive in home health care services. It also says that it "hundred" of requests were made for services never received and that 25 people were being prosecuted for fraud.

Let's compare numbers. "hundreds" could be 400. 400 out of 400,000 is 0.1%. Let's say that's just the tip of the iceberg, literally one tenth of the fraud cases, then the rate of fraud is 1%. Let's be alarmists and say that the 400 really represents 1% of the actual fraud, then the fraud rate is 10%. STILL, 90% of your money is going where it should.

I'm not excusing fraud, I want it put into perspective. You are using "FRAUD" and "WASTE" to condemn all government. You'll have to do better if you want to convince me you're right. "

steph wrote on Jul 18, 2009 6:03 PM:

" http://www.ppic.org/content/pubs/report/R_409CDR.pdf

Exerpted:
Federal rules require the state to have close to half of all adults on welfare working at least part-time, or engaged in a limited set of activities intended to lead to employment. Failure to meet this standard (the so-called “work participation rate”) can result in substantial fiscal penalties for the state. The most recent official statistics indicate that only about one-fifth (22.2%) of CalWORKs families required to comply with the federal standard actually did in 2006.
Current state law allows cash assistance to continue to children whose parents have been removed from aid (“sanctioned”) for failing to meet work requirements. Similarly, current law limits adults to a maximum of 60 months of cash assistance, but their children’s eligibility is not time limited.

Comparing California’s caseload and work participation rate to those in other states, we find that the state’s caseload would be substantially lower, and its work participation rate significantly higher, if the state adopted stricter sanction policies for adults who fail to meet work requirements.

California is one of four states that have not applied the federal 60-month time limit on aid to families on welfare. In California, adults have a 60-month time limit on welfare benefits, but children can continue to receive welfare benefits after parents have reached time limits, as long as they remain otherwise eligible.4 California uses state funds to continue assistance to these children. "

steph wrote on Jul 18, 2009 6:26 PM:

" http://gov.ca.gov/speech/12761/

Exerpted:

The Governor mentioned our work participation rate right now is about 22 percent and the U.S. average of all states is 32 percent, so we’re ranked very near the bottom, 45th, in the federal work participation rate.

We also have a lower than national caseload decline. If you look at the period of time over the last 10 years, roughly 1995 to 2005, our rate decline of caseload is 44 percent, compared to the national rate of just about 49 percent and this leaves California ranked 29th in the country on caseload decline.

We also have a higher than national average caseload. If you look at our population and as the Governor noted, 30 percent of all families in the country on cash assistance are in California’s program. If you compare us to some of the other larger states, 3 percent of families on the national program are in Texas and in New York it’s 7 percent. So we’re an outlier there as well.

And as the Governor mentioned also, because of our policies, people on cash assistance stay on cash assistance longer in California. Over 40 percent of our families are entering their fifth year on aid. "

steph wrote on Jul 18, 2009 7:12 PM:

" Teacher, I'm only quoting stats on CalWorks, and this does not include Food Stamps, Section 8, Medi-Cal, free lunch programs, IHSS, disability (which needs reform of its own.)

CalWorks is a $6.3 billion program per year. http://www.cbp.org/pdfs/2009/090602_CalWORKs_County_Fact_Sheet.pdf


Foodstamps is $2.7 billion in California (2007). This is from an organization that says we need to have MORE people on food stamps. http://www.ppic.org/content/pubs/jtf/JTF_FoodStampJTF.pdf

I can't find the annual budget for subsidized housing that comes into California. Of course, in my opinion, this is like welfare for the wealthy, too, because it transfers money from taxpayers to people who own investment real estate.

"California spends $38 billion a year on Medi-Cal, its second largest expenditure after education, according to the LAT." http://blogs.wsj.com/health/2009/07/10/court-state-budget-crisis-doesnt-justify-pay-cut-for-doctors/ "

glenroy wrote on Jul 21, 2009 9:08 AM:

" steph.....need a campaign manager?

You really should be in public office.... "

steph wrote on Jul 21, 2009 3:13 PM:

" *blush!*

I'll just do the research in the background. That's more my style. "

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